Pricing strategy is a key determinant of your company's profitability. To understand your pricing strategy, you must know the answers to these questions: How is your product priced? Is it a onetime fee? A subscription? Is your pricing a "razor and blade model"? Do you charge for accessories and extras? Do you offer additional services and warranties? Do you have different prices for different customers/markets/features? Do you use cost plus or value-based pricing?
- Pricing is one of the most critical decisions…an organization makes.…A 1% difference on the top line price…is worth a 10% profit increase on a business…with a 10% gross margin.…For example, if you're selling your product for $100,…and you make $10 per unit,…that's a 10% margin.…If you raise your price by 1%,…and go from $100 to $101,…that incremental dollar drops straight to the bottom line,…so now you go from making $10 to $11,…that's a 10 percent improvement on the bottom…for a 1% improvement on the top.…
Pricing has a huge impact on your overall profitability.…You need to understand how is your product…or service priced?…Is it a one time fee?…Is it a subscription model?…Do you have a razor and blade model…where you sell something really cheap,…but the replacement parts are an ongoing stream of revenue?…Do you sell accessories or extras with your core product?…Do you offer additional services or warranties?…Different prices for different customers…and different markets and features are typical…for most businesses.…
- What business are you in?
- What's your market and who is your competition?
- What problem does your business solve?
- How are your products and services created? What are your pricing and growth strategies?
- How do you measure performance?
With the answers in hand, you can be assured your have the knowledge to make the best decisions for your business.
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